Push for revenue reform finds new avenues

Tuesday, June 20, 2017

House Revenue Committee member Rep. Mark Johnson (R-Hood River) questioned whether amendments before the committee Wednesday were meant to fix problems in the tax structure or just to raise revenue. Johnson is on the Hood River County School Board. (Photo by Jake Arnold, OSBA)

New bill amendments surfaced Wednesday that could translate to more than $550 million in increased state business taxes in 2017-19. These latest fits and starts of revenue reform lurched into the House Revenue Committee through amendments to House Bills 2061 and 2060.

The committee, in a short-notice meeting, passed an amended HB 2060 that would reduce the number of people who can claim a special lower tax rate on business income. The Legislative Revenue Office estimates that would increase Oregon revenue by $196 million in 2017-19 and $227 million in 2019-21. The bill now goes to the House floor.

Three amendments were offered for HB 2061. One would do the same as HB 2060. One would prevent businesses from writing off employee compensation over $1 million, thus increasing the businesses’ taxable income. That would increase Oregon revenue by an estimated $160 million in 2017-19 and $209 million in 2019-21. A third amendment would limit business deductions for larger corporations, adding $209 million to the General Fund in 2017-19 and $417 million in 2019-21, according to LRO estimates.

Legislative Revenue Officer Paul Warner said it was the office’s opinion that the tax changes could be passed by a simple majority in both houses because they expand the tax base but don’t directly affect the rates. That distinction is crucial because Democrats have a majority in both chambers but do not command the three-fifths majority needed to pass “bills for raising revenue” required by a 1996 constitutional amendment.

The amendments for HB 2061 did not receive a vote, but at this point in the session a committee can meet with only an hour’s notice. House Revenue Committee Chair Phil Barnhart (D-Eugene) warned the committee to be ready.

“Everything is very much in flux,” Barnhart said after the hearing.

Earlier this week there was a barrage of amendments in the Joint Tax Reform Committee with House Bill 2830. The bill started out as an increase in the corporate tax rate. A series of amendments changed HB 2830 into a “bridge bill,” temporarily raising the corporate tax rate while replacing it with a commercial activities tax, which is a tax on a company’s gross sales in Oregon. More amendments on Monday would have returned the bill to just a corporate tax increase, but the bill did not come to a vote. It is not scheduled for another vote.

Revenue reform has been closely tied to the State School Fund. Senate Bill 5517 would appropriate $8.2 billion for K-12 public education, but education advocates, school district officials and legislators of both parties agree that is not enough.

SB 5517 was passed by the Senate 25-5 despite widespread testimony that Oregon should do better for its children. When it came up for a vote in the House on Tuesday, Rep. Barbara Smith Warner (D-Portland) proposed it be postponed for a week.

“We are still working hard to find a way to make strategic new investments in our schools by containing costs and reforming our revenue system,” said Smith Warner in her motion. Smith Warner is vice chair of the House Revenue Committee.

Democrats have said the State School Fund can’t be increased without added revenue, and Republicans have said there can’t be revenue reform without cost containment as well.

House Republican Leader Mike McLane (R-Powell Butte) urged an immediate vote on the State School Fund, pointing out there is no cost containment bill for the House to consider and the state has record revenue.

“No amount of political jockeying is going to change the numbers in this state,” he said Tuesday.